PA395 – Green Taxes
John Mejia
Air
Air
Contaminant
Emissions:
Present Use and Future Possibilities
What are environmental taxes?
What are environmental taxes? To fiscal conservatives who want the smallest
government possible – with the goal being no government at all – environmental taxes must
seem like the last thing you want to have happen. If we take sales taxes or gas taxes as our point
of reference, environmental taxes would appear an insane concept. “Are we to be taxed on the air
we breathe?” is a question that must come over the minds of these classical economic theorists.
The reality, however, is quite different.
Environmental taxes address the problems of pollution and are therefore a tax on
the misuse of the environment rather than its use. Although the tax system may work well for the
allocation of private property and resources, it is woefully inadequate for addressing issues
dealing with the commons. As we have discussed in class, the commons are those things that we
vouchsafe from the environment or society that we hold in common and that we pass along onto
future generations. Examples include such common assets as minerals and timber on public land
or radio waves.1 It is precisely because no one owns the commons that their theft has been thus
far been ignored.
For example, if I own cows and you make hamburgers out of my cows you have
to pay me. Everyone conditioned in this “free” market capitalist society sees the logic in that.
Now, who gets paid when I use clean air to combust materials in order for me to make my
widget and release polluted air back into the atmosphere? The answer, which was so self-evident
in the previous example, now perplexes most economists. “No one” is what most classical
economics gurus would say. But is that right? Clean air is something we all need and must have
1
Common_Assets.pdf (class resource)
to survive. In first aid the rule of 5s is taught. Basically after five minutes without oxygen, or five
days without water, or five weeks without food you die.2 But the affects of polluted water and
polluted air make one understand why there must be some system of accountability for the
commons.
Environmental Taxes: Durning and Goals
If I pay taxes to support federal lands why are companies being subsidized to
clear-cut the very same forests? If I am being sickened by the pollution of a coal power plant
shouldn’t I be compensated? Environmental taxes begin to address the issue of the commons and
of basic fairness. Our reading has provided two theories, which provide a matrix through which
we can evaluate any environmental tax.
In his book “Tax Shift” Durning proposes a set of criteria for categorizing
environmental taxes:

Behavioral

Cost-Internalization

Revenue Driven
In essence, behavioral taxes do what it sounds like they do – they are aimed at
primarily changing behavior. This might be getting people to stop using lead paint by charging
10 times as much taxes on it than latex paint.
2
Red Cross Training Workshop seminar, Northern New England Red Cross
Cost-Internalization taxes endeavor to add externalities back into the cost of
products. These may be difficult to image in real world scenarios that involve a great many
variable but if we pare down a hypothetical example we get to a clear reasoning for these taxes.
For instance, imagine that in order for me to make a single one of my widgets, I have to spill a
gallon of oil on the sidewalk outside my factory. The city has to pay, with public funds, someone
to clean up that spill, let’s say $100. Currently I sell my widget for $23. In order to internalize
the cleanup externality the city must impose $100 tax on the sale of each widget. This example
makes the obtuse terminology of “internalizing externalities” completely understandable to
anyone. Now although a tax may primarily be meant to internalize costs they may also have a
behavioral affect as well. At $23 I think widgets are a good investment but at $123 I can do
without one. That means that these two environmental tax objectives are not usually mutually
exclusive and in most cases are mutually inclusive.
The last tax aim is simply to raise revenues for the government. Adding a
$0.01/lb. of peanuts would not much affect peanut eating people’s behavior or internalize any
external costs but in a pb & j crazed society it may give the government a valuable source of
revenue.
Environmental Taxes: Milne and Efficacy
By contrast Janet Milne’s “Environmental Taxes: An Introductory Primer”
focuses not on the intent of the tax but rather on its feasibility. Milne main thesis uses three
points to evaluate any environmental tax:

Administrative Feasibility

Environmental Effectiveness

Political Visibility
All three of these points are self-explanatory (unlike Durning’s terms). The only
one that may need elucidation is the political visibility. Political visibility may work against the
effectiveness of a tax if everyone who pays it decides not to re-elect the official who instituted
it.3
Commonalities: Equity
In addition to these other points both Durning and Milne agree that the equity of a
tax is important. For example the feebate system described in Durning to retire junker cars by
taxing them heavily and subsidizing more efficient cars overlooks the fact that people purchase
junker cars because they simply can’t afford more efficient ones. In any case we must be
cognizant of how equitably the cost is distributed throughout the entire population.
Air Contaminant Fees in VT
Vermont fees on air emissions are much more sophisticated than most other states
appear to be. Fees are charged for emissions only for individuals who emit more than 5 tons a
year – although combustion of fuel in manufacturing processes and equipment are in most cases
exempt. Charges on pollution are also delineated by their relative harmfulness. Short-term
irritants are charged $0.008/lb, chronic systemic toxics are charged $0.084, low-potency
3
Class presentation of Janet Milne
emissions are charged $0.84/lb while high-potency emissions are charged $8.40/lb. In addition,
an $800 fee is charged to anyone who produces 10 tons or more.
In contrast, most federal guidelines like those administered by the EPA calculate
their fees on $/ton! Also, many other states do not differentiate between pollutants on the basis of
their toxicity – a flat rate is charged regardless of their deadliness.
Now in terms of goals these taxes are used to fund state clean up of the
environment and also to fund the monitoring of polluters. Because the size of these taxes is in
most cases negligible they are not being employed as behavioral taxes.
These taxes cannot be considered cost-internalization taxes either because they
are used only to mitigate the pollutants that are released into the environment and to monitor
rates of emission. Although they are used to fund clean-up operations they do not pay other
costs, such as the cost in healthcare to people exposed and other secondary and tertiary costs
associated with their release.
By process of elimination we see that these taxes are merely revenue driven. The
taxes are used simply to raise money. The money is used for remediation but they fall well below
the mark of internalizing any of the externalities.
In terms of Milne’s criteria the air emissions taxes are administratively feasible –
as is evidenced by their existence. Their environmental effects are negligible because they
constitute such a small portion of a business’ operating expenditures. In addition, because of the
exempt status of entities who emit less than five tons not many individuals are affected by these
regulations and they remain invisible to the general populace – which helps them in the long run
by ensuring that voters will not react adversely to their imposition.
In terms of equity since people who emit less than 5 tons are exempt. If you
release more pollutants you must be larger and therefore have access to more financial resources,
this minimizes or eliminates any regressive properties of these taxes.
Conclusion
I believe that although Vermont’s fees on air contaminant emissions are more
advanced and nuanced than most other states, they still fall woefully short of what their objective
should be - encouraging companies towards the adoption of cleaner technologies. Even in their
deterrent affect, their small impact on the bottom line will ensure that this deterrence will be
minimal at best. In addition, since they charge most for the burning of natural gas in
manufacturing processes (which burns the cleanest) and the least for oil (which is much dirtier)
they are enforcing an unintended kind of perverse subsidy on oil use.4 I believe that in order to
affect behavior – which is what most taxes should aim to do – these fees must be increased on air
contaminant emissions and they should also reflect (in fuels) the harm that each fuel does to the
environment.
4
Greentaxes_Appendix.pdf
References
Alan Durning, “Tax Shift” 1998
Janet Milne, “Environmental Taxes: An Introductory Primer” 1996
“Greentaxes Appendix.pdf”